I notice that you aren't giving your graphic element a spatial reference. Without a spatial reference defined, it's quite possible that ArcMap will not properly project the element. Have you determined that this is not a spatial reference issue? I've been using ITopoOp.Buffer for over a decade and have never had any problems with it.
If you're using the measure tool, check what type of distance it's returning. A problem with east-west distances implies to me that the geodesic distance is being returned.